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Read the following scenario and answer the THREE questions that follow.
Kasta, a small industrial town hosted a steel plant and its associated ancillary companies. Most of its residents were steel plant employees from different states of the country. While the town offered employment opportunities, it lacked an airport. For those wanting to fly, the nearest airport was in Michaelganj, 100 kms from Kasta. To reach the airport, people rented taxi services available at Kasta, and Prabhu was one such taxi-service provider.
Prabhu’s rates were reasonable — a trip to airport cost Rs. 2200, but for a round trip, the fare was Rs. 3000. Yet, it was not just the affordability that made him popular, his reputation for punctuality and reliability was unmatched. When it came to ensuring the safety of women travelling alone, he would always be the first choice. Such was his trustworthiness that even the steel plant would solicit his services when expecting solo female visitors. Moreover, whenever residents encountered issues with their personal cars, they would turn to Prabhu for help.
However, the world shifted when the COVID-19 pandemic struck. Travel restrictions and safety concerns limited Prabhu’s trips to Michaelganj for over a year and a half. Financial strain followed, with accumulating interest on his home loan. He was weighed down by debt, but things improved once COVID-19 travel restrictions were lifted. Having faced financial hardships during COVID-19, he sought to offset his losses by raising the fare. Yet, he was aware of the stiff competition in town, where many others offered services at a similar fare as his.
After Prabhu increased his charges by 30%, the revenue flow was promising in the beginning, especially from the steel plant’s official trips. After a few months, he noticed a dip in private bookings. On exploring further, Prabhu realized that while women travelling solo still preferred Prabhu’s service, some of his regular customers were choosing his competitors when travelling as a family. However, he knew that his competitors, while charging lower than him, were still tardy and sometimes cancelled at the last minute.
Which of the following options will BEST help Prabhu to retain his revenue flow?
Our aim with this question is for Prabhu to somehow retain his revenue flow. Let's consider each option individually.
Option A: This does not work in Prabhu's favor. Reducing his prices might bring some of his customers back, but it's uncertain whether those returning customers would compensate for the revenue loss caused by the reduced prices.
Option B: Giving a 50% discount would also drastically impact his revenue sources. The customers coming back might not be able to compensate for the money he would lose out by offering this discount.
Option D: Although he is the first choice for women travelling alone, with his competitors offering lower prices, some female customers would be hesitant to pay a premium on top of already high prices for Prabhu's service. This decision might instead have a negative impact on his revenue flow.
Option E: Similar to option D, this too, can be eliminated using the same logic. Charging a premium on top of already increased prices might discourage the steel plant from availing his services.
Through the method of elimination of wrong choices, we are left with only one option.
Option C: Stick to his increased prices. Although not very obvious at first, this would be the best action of all the given options. We are given that the competitors offering cheaper services are tardy and unreliable, which would bring his regular customers, traveling in families, back to him due to the feature that attracted them in the first place: reliability and punctuality. Until then, he can sustain the bookings done by female travelers and the official trips by the steel plant.
Therefore, Option C is the correct answer.
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